Halliburton: Profits of war

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> Thu, 22 Jul 2004 06:18:59 -0700

> Halliburton: Profits of war

>

>

>

<http://www.guardian.co.uk/usa/story/0,12271,1266328,00.html>

 

> Profits of war

>

> Halliburton has become a byword for the cosy links

> between the White

> House and Texan big business. But how did the

> company run in the 90s by

> Dick Cheney secure a deal that guaranteed it

> millions in profit every

> time the US military saw action? In this exclusive

> extract from his new

> book, Dan Briody reveals how the firm made a killing

> on the battleground

>

> Thursday July 22, 2004

> The Guardian

>

>

> Buy The Halliburton Agenda at Amazon.co.uk

>

> On January 12 1991, Congress authorised President

> George HW Bush to

> engage Iraq in war. Just five days later, Operation

> Desert Storm

> commenced in Kuwait. As with the more recent war in

> the Gulf, it did not

> take long for the US to claim victory - it was all

> over by the end of

> February - but the clean-up would last longer, and

> was far more

> expensive than the military action itself. In a

> senseless act of

> desperation and defeat, Iraqi troops set fire to

> more than 700 Kuwaiti

> oil wells, resulting in a constant fog of thick,

> black smoke that turned

> day into night.

>

> It was thought the mess would take no less than five

> years to clean up,

> as lakes of oil surrounding each well blazed out of

> control, making it

> nearly impossible to approach the burning wells, let

> alone extinguish

> them. But with the fighting over, Halliburton angled

> its way into the

> clean-up and rebuilding effort that was expected to

> cost around $200bn

> (£163bn) over the next 10 years.

>

> The company sent 60 men to help with the

> firefighting effort. Meanwhile,

> its engineering and construction subsidiary Kellogg

> Brown & Root (KBR)

> won an additional $3m contract to assess the damage

> that the invasion

> had done to Kuwait's infrastructure - a contract

> whose value had

> multiplied seven times by the end of KBR's

> involvement. More

> significantly still, KBR won a contract to extract

> troops from Saudi

> Arabia after their services were no longer needed in

> the Gulf.

> Halliburton was back in the army logistics business

> in earnest for the

> first time since Vietnam. The end of the Gulf war

> saw nothing less than

> the rebirth of the military outsourcing business.

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> Military outsourcing was not new. Private firms had

> been aiding in war

> efforts since long before KBR won its first naval

> shipbuilding contract.

> But the nature of military outsourcing has changed

> dramatically in the

> last decade. The trend towards a " downsized "

> military began because of

> the " peace dividend " at the end of the cold war, and

> continued

> throughout the 1990s. This combination of a reduced

> military but

> continued conflict gave rise to an unprecedented new

> industry of private

> military firms. These firms would assist the

> military in everything from

> weapons procurement and maintenance to training of

> troops and logistics.

>

> In the decade after the first Gulf war, the number

> of private

> contractors used in and around the battlefield

> increased tenfold. It has

> been estimated that there is now one private

> contractor for every 10

> soldiers in Iraq. Companies such as Halliburton,

> which became the fifth

> largest defence contractor in the nation during the

> 1990s, have played a

> critical role in this trend.

>

> The story behind America's " super contract " begins

> in 1992, when the

> department of defence, then headed by Dick Cheney,

> was impressed with

> the work Halliburton did during its time in Kuwait.

> Sensing the need to

> bolster its forces in the event of further conflicts

> of a similar

> nature, the Pentagon asked private contractors to

> bid on a $3.9m

> contract to write a report on how a private firm

> could provide

> logistical support to the army in the case of

> further military action.

>

> The report was to examine 13 different " hot spots "

> around the world, and

> detail how services as varied as building bases to

> feeding the troops

> could be accomplished. The contractor that would

> potentially provide the

> services detailed in the report would be required to

> support the

> deployment of 20,000 troops over 180 days. It was a

> massive contingency

> plan, the first of its kind for the American

> military.

>

> Thirty-seven companies tendered for the contract;

> KBR won it. The

> company was paid another $5m later that year to

> extend the plan to other

> locations and add detail.

>

> The KBR report, which remains classified to this

> day, convinced Cheney

> that it was indeed possible to create one umbrella

> contract and award it

> to a single firm. The contract became known as the

> Logistics Civil

> Augmentation Programme (Logcap) and has been called

> " the mother of all

> service contracts " . It has been used in every

> American deployment since

> its award in 1992 - at a cost of several billion

> dollars (and counting).

> The lucky recipient of the first, five-year Logcap

> contract was the very

> same company hired to draw up the plan in the first

> place: KBR.

>

> The Logcap contract pulled KBR out of its late 1980s

> doldrums and

> boosted the bottom line of Halliburton throughout

> the 1990s. It is,

> effectively, a blank cheque from the government. The

> contractor makes

> its money from a built-in profit percentage,

> anywhere from 1% to 9%,

> depending on various incentive clauses. When your

> profit is a percentage

> of the cost, the more you spend, the more you make.

>

> Before the ink was dry on the first Logcap contract,

> the US army was

> deployed to Somalia in December 1992 as part of

> Operation Restore Hope.

> KBR employees were there before the army even

> arrived, and they were the

> last to leave. The firm made $109.7m in Somalia. In

> August 1994, they

> earned $6.3m from Operation Support Hope in Rwanda.

> In September of that

> same year, Operation Uphold Democracy in Haiti

> netted the company $150m.

> And in October 1994, Operation Vigilant Warrior made

> them another $5m.

>

> In the spirit of " refuse no job " , the company was

> building the base

> camps, supplying the troops with food and water,

> fuel and munitions,

> cleaning latrines, even washing their clothes. They

> attended the staff

> meetings and were kept up to speed on all the

> activities related to a

> given mission. They were becoming another unit in

> the US army.

>

> The army's growing dependency on the company hit

> home when, in 1997, KBR

> lost the Logcap contract in a competitive rebid to

> rival Dyncorp. The

> army found it impossible to remove Brown & Root from

> their work in the

> Balkans - by far the most lucrative part of the

> contract - and so carved

> out the work in that theatre to keep it with KBR. In

> 2001, the company

> won the Logcap contract again, this time for twice

> the normal term

> length: 10 years.

>

> To the uninitiated, the appointment of Cheney to the

> chairman,

> president, and chief executive officer positions at

> Halliburton in

> August 1995, made little sense. Cheney had almost no

> business

> experience, having been a career politician and

> bureaucrat. Financial

> analysts downgraded the stock and the business press

> openly questioned

> the decision.

>

> Cheney has been described by those who know him as

> everything from

> low-key to downright bland, but the confidence he

> inspired and the

> loyalty he professed made him an indispensable part

> of Donald Rumsfeld's

> rise to power. In the 1970s, Rumsfeld became Gerald

> Ford's White House

> chief of staff, with Cheney as his deputy. In those

> days, Cheney was

> assigned a codename by the secret service that

> perfectly summed up his

> disposition: " Backseat " .

>

> But Halliburton understood Cheney's value. With him

> as CEO, the company

> gained considerable leverage in Washington. Until

> Cheney's appointment

> in the autumn of 1995, Halliburton's business

> results had been decent.

> After a loss of $91m in 1993, the company had

> returned to profitability

> in 1994 with an operating profit of $236m. With the

> new revenue coming

> in from Logcap, Halliburton and its prize

> subsidiary, KBR, were back on

> track. Though Logcap was producing only modest

> revenues, it was

> successful in reintegrating KBR into the military

> machine.

>

> The big opportunity came in December 1995, just two

> months after Cheney

> assumed the post of CEO, when the US sent thousands

> of troops to the

> Balkans as a peace-keeping force. As part of

> Operation Joint Endeavour,

> KBR was dispatched to Bosnia and Kosovo to support

> the army in its

> operations in the region. The task was massive in

> scope and size.

>

> One example of the work KBR did in the Balkans was

> Camp Bondsteel. The

> camp was so large that the US general accounting

> office (GAO) likened it

> to " a small town " . The company built roads, power

> generation, water and

> sewage systems, housing, a helicopter airfield, a

> perimeter fence, guard

> towers, and a detention centre. Bondsteel is the

> largest and most

> expensive army base since Vietnam. It also happens

> to be built in the

> path of the Albanian-Macedonian-Bulgarian Oil (Ambo)

> Trans-Balkan

> pipeline, the pipeline connecting the oil-rich

> Caspian Sea region to the

> rest of the world. The initial feasibility project

> for Ambo was done by KBR.

>

> KBR's cash flow from Logcap ballooned under Cheney's

> tenure, jumping

> from $144m in 1994 to more than $423m in 1996, and

> the Balkans was the

> driving force. By 1999, the army was spending just

> under $1bn a year on

> KBR's work in the Balkans. The GAO issued a report

> in September 2000

> charging serious cost-control problems in Bosnia,

> but KBR retains the

> contract to this day.

>

> Meanwhile, Cheney was busy developing Halliburton's

> business in other

> parts of the world. " It is a false dichotomy that we

> have to choose

> between our commercial and other interests, " he told

> the [public policy

> research foundation] Cato Institute in 1998,

> speaking out against

> economic sanctions levied by the Clinton

> administration against

> countries suspected of terrorist activity. " Our

> government has become

> sanctions-happy, " he continued.

>

> In particular, Cheney objected to sanctions against

> Libya and Iran, two

> countries with which Halliburton was already doing

> business regardless.

> Even more disconcerting, though, was the work the

> company did in Iraq.

> Between his stints as secretary of defence and

> vice-president, Cheney

> was in charge of Halliburton when it was

> circumventing strict UN

> sanctions, helping to rebuild Iraq and enriching

> Saddam Hussein.

>

> In September 1998, Halliburton closed a $7.7bn stock

> merger with Dresser

> Industries (the company that gave George HW Bush his

> first job). The

> merger made Halliburton the largest oilfield

> services firm in the world.

> It also brought with it two foreign subsidiaries

> that were doing

> business with Iraq via the controversial Oil for

> Food programme. The two

> subsidiaries, Dresser Rand and Ingersoll Dresser

> Pump Co, signed

> $73m-worth of contracts for oil production

> equipment.

>

> Cheney told the press during his 2000 run for

> vice-president that he had

> a " firm policy " against doing business with Iraq. He

> admitted to doing

> business with Iran and Libya, but " Iraq's

> different, " he said. Cheney

> told ABC TV: " We've not done any business in Iraq

> since UN sanctions

> were imposed on Iraq in 1990, and I had a standing

> policy that I

> wouldn't do that. "

>

> Three weeks later, Cheney was forced to admit the

> business ties, but

> claimed ignorance. He told reporters that he was not

> aware of Dresser's

> business in Iraq, and that besides, Halliburton had

> divested itself of

> both companies by 2000. In the meantime, the

> companies had done another

> $30m-worth of business in Iraq before being sold

> off.

>

> The Dresser merger was, it appeared, the crowning

> achievement of the

> Cheney years at Halliburton. But Cheney left

> Halliburton several other

> legacies. David Gribbin, Cheney's former chief of

> staff, became

> Halliburton's chief lobbyist in Washington. Admiral

> Joe Lopez, a former

> commander of the sixth fleet, was hired to be KBR's

> governmental

> operations expert. Together, Cheney's team made

> Halliburton one of the

> top government contractors in the country. KBR had

> nearly doubled its

> government contracts, from $1.2bn in the five years

> prior to his

> arrival, to $2.3bn during his five years as CEO.

> Halliburton soared from

> 73rd to 18th on the Pentagon's list of top

> contractors.

>

> After 9/11, KBR went to work on the war on

> terrorism, building the 1,000

> detention cells at Guantanamo Bay, Cuba, for

> terrorist suspects, at a

> cost of $52m. The work had to feel familiar to KBR:

> it had done the

> exact same job 35 years earlier in Vietnam. When

> troops were deployed to

> Afghanistan, so was KBR. It built US bases in Bagram

> and Kandahar for

> $157m. As it had done in the past, KBR had men on

> the ground before the

> first troops even arrived in most locations. They

> readied the camps, fed

> the troops, and hauled away the waste. And they did

> it like the military

> would have done it: fast, efficient, and effective.

> It was good work,

> solid revenues, but nothing like the windfall the

> company had

> experienced in the Balkans.

>

> In addition, Halliburton won the contract for

> restoring the Iraqi oil

> infrastructure - a contract that was not

> competitively bid. It was given

> to Halliburton out of convenience, because it had

> developed the plan for

> fighting oil fires (all, by this time,

> extinguished). Despite the new

> business, the fortunes of Halliburton and its

> subsidiary have not

> prospered. The stock that Cheney cashed in near its

> peak, when he

> renewed his political career in 2000, has since

> plummeted. The main

> culprit was the 1998 merger with Dresser, which

> saddled the company with

> asbestos liabilities that ultimately led to two

> Halliburton subsidiaries

> - one of them KBR - having to file for bankruptcy.

>

> When Cheney left to become Bush's running mate, he

> took a golden

> parachute package - in addition to the stock options

> he was obliged to

> sell for $30m. In September 2003, Cheney insisted:

> " Since I've left

> Halliburton to become George Bush's vice-president,

> I've severed all my

> ties with the company, gotten rid of all my

> financial interests. I have

> no financial interest in Halliburton of any kind and

> haven't now for

> over three years. "

>

> The Congressional Research Service (CRS), a

> non-partisan agency that

> investigates political issues at the request of

> elected officials, says

> otherwise. Cheney has been receiving a deferred

> salary from Halliburton

> in the years since he left the company. In 2001, he

> received $205,298.

> In 2002, he drew $162,392. He is scheduled to

> receive similar payments

> through 2005, and has an insurance policy in place

> to protect the

> payments in the event that Halliburton should fold.

> In addition, Cheney

> still holds 433,333 unexercised stock options in

> Halliburton. He has

> agreed to donate any profits to charity.

>

> · The Halliburton Agenda by Dan Briody is published

> by John Wiley and

> Sons Ltd at £16.99. To order a copy for £14.99 plus

> p & p, call Guardian

> Book Service on 0870 836 0875.

>